EUR/USD bounced on Tuesday, but the pair is still trading close to the 17-month low it hit on Monday. The broader downtrend looks intact, though the market probably needs a pause before the next leg lower.

Bears have had trouble getting through 1.1150. Buyers have shown up on several dips toward that level, possibly to defend an option barrier. Still, the level stays vulnerable unless EUR/USD puts together a meaningful rally.

A strong recovery looks unlikely. Fiscal and election uncertainty in France, Spain and Germany probably won't be resolved soon. That backdrop could keep the European Central Bank on hold and keep the US dollar attractive to investors.

After falling almost 4.75% from its August monthly high, the pair needs a period of distribution before the downtrend can pick up again. The recent consolidation suggests that process is already underway. It also gives the deeply oversold daily RSI a chance to recover.

Longer-term technicals suggest any rally will be sold. The monthly RSI and widening 15-month Bollinger Bands signal ongoing downside momentum and rising volatility, both of which should help to keep bearish sentiment in place.

For traders holding long positions, the bearish view might only change if EUR/USD breaks above the 1.1350–1.1400 resistance zone and holds there over time. Until then, the path of least resistance stays lower.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)